Advanced Search
MyIDEAS: Login

The empirical (ir)relevance of the interest rate assumption for central bank forecasts

Contents:

Author Info

  • Knüppel, Malte
  • Schultefrankenfeld, Guido

Abstract

The interest rate assumptions for macroeconomic forecasts differ considerably among central banks. Common approaches are given by the assumption of constant interest rates, interest rates expected by market participants, or the central bank's own interest rate expectations. From a theoretical point of view, the latter should yield the highest forecast accuracy. The lowest accuracy can be expected from forecasts conditioned on constant interest rates. However, when investigating the predictive accuracy of the forecasts for interest rates, inflation and output growth made by the Bank of England and the Banco do Brasil, we hardly find any significant differences between the forecasts based on different interest assumptions. We conclude that the choice of the interest rate assumption, while being a major concern from a theoretical point of view, appears to be at best of minor relevance empirically. --

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://econstor.eu/bitstream/10419/71907/1/742526879.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Papers with number 11/2013.

as in new window
Length:
Date of creation: 2013
Date of revision:
Handle: RePEc:zbw:bubdps:112013

Contact details of provider:
Postal: Postfach 10 06 02, 60006 Frankfurt
Phone: 0 69 / 95 66 - 34 55
Fax: 0 69 / 95 66 30 77
Email:
Web page: http://www.bundesbank.de/
More information through EDIRC

Related research

Keywords: Forecast Accuracy; Density Forecasts; Projections;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Antonello D'Agostino & Domenico Giannone & Paolo Surico, 2005. "(Un)Predictability and Macroeconomic Stability," Macroeconomics 0510024, EconWPA.
  2. Tim Hampton, 2002. "The role of the Reserve Bank's macro model in the formation of interest rate projections," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 65, June.
  3. James Mitchell & Wallis, K.F., 2008. "Evaluating Density Forecasts: Forecast Combinations, Model Mixtures, Calibration and Sharpness," NIESR Discussion Papers 320, National Institute of Economic and Social Research.
  4. Charles Goodhart, 2009. "The Interest Rate Conditioning Assumption," International Journal of Central Banking, International Journal of Central Banking, vol. 5(2), pages 85-108, June.
  5. Refet S. Gürkaynak, 2005. "Using federal funds futures contracts for monetary policy analysis," Finance and Economics Discussion Series 2005-29, Board of Governors of the Federal Reserve System (U.S.).
  6. Eric M. Leeper & Tao Zha, 2002. "Modest Policy Interventions," NBER Working Papers 9192, National Bureau of Economic Research, Inc.
  7. Raffaella Giacomini & Halbert White, 2003. "Tests of conditional predictive ability," Boston College Working Papers in Economics 572, Boston College Department of Economics.
  8. Laséen, Stefan & Svensson, Lars E.O., 2011. "Anticipated Alternative Policy-Rate Paths in Policy Simulations," Working Paper Series 248, Sveriges Riksbank (Central Bank of Sweden).
  9. Rochelle M. Edge & Refet S. Gurkaynak, 2010. "How Useful Are Estimated DSGE Model Forecasts for Central Bankers?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(2 (Fall)), pages 209-259.
  10. Harvey, David & Leybourne, Stephen & Newbold, Paul, 1997. "Testing the equality of prediction mean squared errors," International Journal of Forecasting, Elsevier, vol. 13(2), pages 281-291, June.
  11. Faust, Jon & Wright, Jonathan H., 2008. "Efficient forecast tests for conditional policy forecasts," Journal of Econometrics, Elsevier, vol. 146(2), pages 293-303, October.
  12. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
  13. David Reifschneider & Peter Tulip, 2007. "Gauging the uncertainty of the economic outlook from historical forecasting errors," Finance and Economics Discussion Series 2007-60, Board of Governors of the Federal Reserve System (U.S.).
  14. Lutkepohl, Helmut, 1981. "A model for non-negative and non-positive distributed lag functions," Journal of Econometrics, Elsevier, vol. 16(2), pages 211-219, June.
  15. Galí, Jordi, 2011. "Are central banks' projections meaningful?," Journal of Monetary Economics, Elsevier, vol. 58(6), pages 537-550.
  16. Malin Adolfson & Stefan Laséen & Jesper Lindé & Mattias Villani, 2005. "Are Constant Interest Rate Forecasts Modest Policy Interventions? Evidence from a Dynamic Open-Economy Model," International Finance, Wiley Blackwell, vol. 8(3), pages 509-544, December.
  17. Gneiting, Tilmann & Raftery, Adrian E., 2007. "Strictly Proper Scoring Rules, Prediction, and Estimation," Journal of the American Statistical Association, American Statistical Association, vol. 102, pages 359-378, March.
  18. Gneiting, Tilmann, 2011. "Making and Evaluating Point Forecasts," Journal of the American Statistical Association, American Statistical Association, vol. 106(494), pages 746-762.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Issing, Otmar, 2013. "A new paradigm for monetary policy?," CFS Working Paper Series 2013/02, Center for Financial Studies (CFS).

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:zbw:bubdps:112013. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.